What Is Price Elasticity?

Imagine your favorite burger joint suddenly doubles its prices. Would you shrug and keep ordering? Or storm out and find a taco truck? Your reaction is what economists care about. That sensitivity — how much quantity demanded responds to a price change — is called price elasticity of demand, or PED for short.

Key Term

Price Elasticity of Demand (PED)

A measure of how responsive the quantity demanded of a good is to a change in its price. More response = more elastic. Less response = more inelastic.

The price elasticity of demand formula — quantity response over price change.

PED answers a simple question: when price moves, how much does quantity demanded move? If consumers barely flinch, demand is inelastic. If they flee (or flood in) at the slightest price change, demand is elastic. Everything else lives somewhere in between.

Economists sort PED into five classifications, depending on the absolute value of PED:

Perfectly inelastic ( $∣ P E D ∣ = 0$ ): Quantity doesn’t change at all.
Inelastic ( $0 < ∣ P E D ∣ < 1$ ): Quantity changes less than price (in %).
Unit elastic ( $∣ P E D ∣ = 1$ ): Quantity changes by exactly the same % as price.
Elastic ( $∣ P E D ∣ > 1$ ): Quantity changes more than price.
Perfectly elastic ( $∣ P E D ∣ = \infty$ ): Any price change wipes out all demand.

Check yourself · no marks

If insulin’s price jumps 20% and diabetics keep buying basically the same amount, is demand elastic or inelastic?

Commit to one first. Guessing and being wrong beats reading the answer cold.

Practice · 1 / 4

No penalty for a wrong answer

Check your understanding:

Price elasticity of demand (PED) measures:

Like what you read?